Herbalife: Solid Earnings, Big Monkey On Its Back

By Ben Levisohn

If Herbalife (HLF) traded only on fundamentals, there’s no telling how high it could go. It doesn’t, however, so investors need to weigh the pros and cons of investing in its shares, despite last night’s financial results.

Good results sure, but can they ever be good enough, what with William Ackmanmounting a crusade against the multi-level market? Websush’s Rommel Dionisio and team assess the risks and rewards:

Broad-based fundamental growth still impressive, with core business and recruiting trends remaining strong, despite recent headlines. While shares of [Herbalife] continue to bounce around in the face of recent headlines as well as a negative publicity campaign being waged by a prominent short seller, we believe Herbalife’s core fundamentals still remain strong, with double-digit growth seen in EMEA, South/Central America, and China, as well as high single-digit growth in the core North America region…

Given Herbalife’s still strong core business momentum, partially offset by continued headline risk, we believe shares of [Herbalife] should trade relatively in line with its peer group. This generates a 2014E P/E multiple of 15x, resulting in our PT of $90.

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FEBRUARY 22, 2014 6:17 P.M.

Rene Porcile wrote:

Here something that makes sense to me:
Herbalife has been around since the 1980s working directly under the nose of regulators in both the United States and Europe. Europe's consumer protection laws, which are also aiming at protecting consumers from multi-level marketing firms, are extremely strict and Europe's regulators have a reputation for taking quite an aggressive stance when it comes to preventing consumer exploitation. None of the regulators found it necessary to intervene in all these years and limit Herbalife in its operations which makes me reaffirm my stance that regulatory intervention in the case of Herbalife is a very low-probability event. Long-term BUY.

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Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.